Opinion
No. 04-1003.
Filed 18 October 2005.
Iredell County No. 02 CVS 2468.
Appeal by defendant from order entered 27 April 2004 by Judge Larry G. Ford in Iredell County, Superior Court. Heard in the Court of Appeals 10 March 2005.
Eisele, Ashburn, Greene Chapman, P.A., by Douglas G. Eisele, for plaintiff-appellee. Patrick, Harper Dixon, LLP, by Evans W. Fisher and David W. Hood, for defendant-appellant.
Defendant Larry D. Austin appeals from an order granting summary judgment in favor of plaintiff Jack L. Elledge, on the issue whether Austin was bound by the results of an appraisal of the assets of a corporation jointly owned by Elledge and Austin. Because the appraisal took place pursuant to a contractual provision and Austin has failed to present evidence of fraud, duress, or impeaching circumstances, we affirm.
Facts
In May 1998, Elledge and Austin formed a corporation called Austin-Elledge, Inc. ("AEI"), with Elledge owning 51% of the stock and Austin owning 49% of the stock. The purpose of the corporation was to develop certain real estate in Iredell County into a community of town houses, to be known as "Queens Crest." As part of their business relationship, Elledge and Austin signed a "Stock/Asset Purchase Agreement" (the "Purchase Agreement") on 18 August 1998. On the same date, AEI and L.D. Austin Company, Inc. entered into the "Queens Crest Operating Agreement" (the "Operating Agreement").
The Operating Agreement provided that L.D. Austin Co., a company owned by Austin, would be the general contractor for the Queens Crest development and would be responsible for "managing all phases of planning . . . and construction of the residential community of Queens Crest." The final clause of the Agreement provided: "This Agreement may . . . be terminated in the event that there are no residential units either completed and available for sale or under construction within the Queens Crest development for a continuous 30 day period." The simultaneously-executed Purchase Agreement also provided, in pertinent part:
In the event of the death or disability of Austin, or of the termination of the Queens Crest Operating Agreement prior to the completion of the Queens Crest development, Elledge shall purchase the shares of stock in Austin-Elledge, Inc. owned by Austin for the fair market value of said shares. If the Queens Crest Operating Agreement is terminated for reasons other than malfeasance or bankruptcy on the part of Austin, any uncompleted residential units under construction shall be completed and sold, and Elledge shall then purchase the shares of stock in Austin-Elledge, Inc. owned by Austin for the appraised fair market value as provided below. The fair market value of Austin's shares shall be determined by a joint appraisal of the corporate assets by one appraiser appointed by Elledge and one appraiser appointed by Austin or his estate. In the event the two appraisers cannot agree on the value of the corporate assets, they shall agree on a third appraiser from Iredell County, whose appraisal value shall be conclusive as to the fair market value of the corporate assets.
Between 17 May 2000 and 21 June 2000, no completed houses remained to be sold and no houses were under construction. On 21 June 2000, AEI gave written notice to L.D. Austin Co. that it was exercising its right to terminate the Operating Agreement. Also on this date, Elledge notified Austin that, pursuant to the Purchase Agreement, he would buy Austin's 49% share of AEI stock at its appraised fair market value.
In accordance with the appraisal clause in the Purchase Agreement, Elledge and Austin each selected an appraiser. Elledge and Austin each asked his appraiser only to evaluate the value of the real estate owned by AEI. Austin's appraiser, R. Chris Miller, reached a "substantially higher" figure for the value of the real estate than Elledge's appraiser, Jerry R. Rhyne. When, in November 2000, the two appraisers were unable to resolve their differing opinions, they agreed upon a third appraiser, John W. Reich, in accordance with the terms of the Purchase Agreement.
On 12 April 2001, Austin's attorney sent AEI a letter stating:
In that our original appraiser no longer supports the selection of Mr. Reich and considering that Mr. Reich has spent several months without attending to this matter, we must now insist that a new appraiser be selected which is mutually agreeable. We no longer consider Mr. Reich as a mutually agreed upon appraiser and cannot agree to use his appraisal as conclusive to the fair market value of the corporate assets.
Elledge's attorney replied on 23 April 2001: "The Stock/Asset Purchase Agreement signed by [Elledge and Austin] provides the mechanism for valuing the stock. John Reich is the individual the two appraisers selected pursuant to the provisions of the Agreement, and while the process has admittedly been prolonged, this agreed upon mechanism is being followed."
On 17 August 2001, closely following another letter from Austin objecting to the slowness of the appraisal process, Reich tendered his appraisal of the value of AEI's real estate as of 21 June 2000, the date upon which AEI terminated the Operating Agreement. Reich concluded that as of 21 June 2000, the real property of AEI was worth $697,000.00. On 20 August 2001, Elledge's attorney forwarded Austin's attorney a letter setting forth Elledge's calculation of the amount due Austin for his AEI shares in light of the Reich appraisal. A summary sheet calculated the corporate assets of AEI as being $706,673.37, including $697,000.00 for the real estate and $9,673.37 in cash and escrow account balances. The liabilities totaled $532,903.57. Deduction of the liabilities from the assets left a total stockholder equity of $173,769.80, of which $88,622.60 (51% of the total) belonged to Elledge and $85,147.20 (49% of the total) belonged to Austin.
On 28 August 2001, Austin's attorney notified Elledge's attorney that Austin would not accept Reich's appraisal "for the reasons previously stated" and because "it is disputed that the land should be valued as of June 21, 2000 as opposed to its current value." The letter stated that Austin had requested that counsel pursue litigation to resolve the matter.
On 15 October 2002, Elledge filed suit against Austin, seeking (1) a declaratory judgment regarding the value of Austin's shares, (2) delivery by Austin to Elledge of AEI's books and records so that AEI's assets and liabilities could be determined, and (3) an injunction compelling Austin to convey his shares to Elledge for a fair market value calculated using the Reich appraisal of AEI's real property. Austin filed an answer on 6 November 2002, seeking a declaration that he was not bound by the selection of Reich as a third appraiser and that the Reich appraisal was irrelevant. Austin further sought an order requiring Elledge to allow his appraiser and Austin's appraiser to select a new third appraiser to value the corporate assets.
The parties filed cross-motions for summary judgment and separate cross-motions for partial summary judgment. On 27 April 2004, the trial court entered an order specifying that "the within Order shall conclude and resolve all matters in dispute . . . and shall constitute a final judgment for all purposes provided by law." The order concluded: (1) that the appraisal by Reich in the amount of $697,000.00 was final and binding upon the parties; (2) that when the appraised value of the real estate was considered with the other assets and liabilities of AEI determined as of 21 June 2000, Elledge owed Austin $111,047.31 for his AEI shares; (3) that this amount should be off-set by the amount of $100,792.70 owed by Austin to Elledge on a promissory note, leaving an indebtedness of $10,254.61 from Elledge to Austin; (4) that judgment should be entered in favor of Austin against Elledge in the amount of $10,254.61; and (5) that, upon payment of the judgment, Austin was required to execute and deliver his shares of AEI to Elledge. Austin filed a timely notice of appeal from this order.
Discussion
"This Court's standard of review on appeal of summary judgment is well-established. Summary judgment is properly granted if considering the pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits, there is no genuine issue of material fact and a party is entitled to judgment as a matter of law." Moore v. Coachmen Indus., Inc., 129 N.C. App. 389, 393-94, 499 S.E.2d 772, 775 (1998). While the moving party initially bears the burden of showing the lack of a triable issue of fact, once the moving party meets its burden, "the nonmoving party must produce a forecast of evidence demonstrating that the nonmoving party will be able to make out at least a prima facie case at trial." Id. at 394, 499 S.E.2d at 775 (internal quotation marks omitted). In reviewing a summary judgment decision, "[t]he evidence is to be viewed in the light most favorable to the nonmoving party." Id.
Austin argues on appeal that summary judgment in favor of Elledge was inappropriate because issues of material fact still exist as to (1) the meaning of the phrase "corporate assets" in the Purchase Agreement and (2) whether Reich's appraisal of the assets is binding, in light of what Austin argues is an unreasonably long amount of time in completing the appraisal. Further, Austin argues that the trial court should have granted his motion for partial summary judgment and ordered that all the corporate assets be appraised.
These arguments must be evaluated in light of the well-established principle that "[i]f the contractual appraisal provisions are followed, an appraisal award is presumed valid and is binding absent evidence of fraud, duress, or other impeaching circumstances." Enzor v. N.C. Farm Bureau Mut. Ins. Co., 123 N.C. App. 544, 545-46, 473 S.E.2d 638, 639 (1996). See also Harleysville Mut. Ins. Co. v. Narron, 155 N.C. App. 362, 370, 574 S.E.2d 490, 495 (2002) ("[A]n appraisal award is binding where the relevant appraisal provision has been followed and there is no evidence of fraud, duress, or impeaching circumstances."), disc. review denied, 357 N.C. 458, 585 S.E.2d 755 (2003); N.C. Farm Bureau Mut. Ins. Co. v. Harrell, 148 N.C. App. 183, 185-86, 557 S.E.2d 580, 582 (2001) (if the contractual appraisal provisions were properly followed, then "plaintiff must show fraud, duress, or other impeaching circumstances to invalidate the umpire's award"), disc. review denied, 356 N.C. 165, 568 S.E.2d 606 (2002). With respect to the summary judgment motions, therefore, the pertinent questions were: (1) whether the contractual appraisal provisions were followed; and (2) if so, whether Austin has presented evidence sufficient to support invalidation of the appraisal. In this case, the contractual appraisal provision provided first that "[t]he fair market value of Austin's shares shall be determined by a joint appraisal of the corporate assets by one appraiser appointed by Elledge and one appraiser appointed by Austin or his estate." If those two appraisers could not agree on the value of the corporate assets, the contract specified that the two appraisers "shall agree on a third appraiser from Iredell County, whose appraisal value shall be conclusive as to the fair market value of the corporate assets." (Emphasis added.)
There is no dispute that Elledge and Austin each selected his own appraiser and that those two appraisers were unable to agree on a value. It is also undisputed that the two appraisers then selected Reich as the third appraiser who then appraised the same property as the parties' two appraisers. The undisputed evidence thus appears to establish that the contractual appraisal procedure was followed.
Austin, however, contends that he was entitled — more than four months after Reich was retained — to reject Reich as an appraiser. The plain language of the contract, however, placed authority for selection of the third appraiser in the hands of the first two appraisers. Nothing in the language of the contract permits the conclusion that one of the parties could veto or strike the selected third appraiser. Further, Austin has not cited any authority to support his alternative argument that his appraiser was permitted to withdraw his agreement to Reich as the third appraiser four months later. Since Austin has failed to offer any evidence or legal argument to demonstrate that the contractual appraisal procedures were not followed, we turn to the second question: whether the appraisal is valid and binding. In this case, there was no evidence of fraud or duress. With respect to impeaching circumstances, this Court has held "that the existence of impeaching circumstances is to be determined on a case by case basis." Harleysville, 155 N.C. App. at 371, 574 S.E.2d at 495.
Austin argues that an issue of material fact exists as to whether the nine months between the selection of Reich as the third appraiser and the tender of Reich's appraisal constituted an unreasonable delay and an impeaching circumstance. We agree that the parties have submitted dueling affidavits on the question of the reasonableness of the delay in Reich's appraisal, but Austin has cited no authority from this State or elsewhere suggesting that the delay in this case amounts to an "impeaching circumstance."
If the delay is not an impeaching circumstance, then any issue of fact regarding that delay would not be material. An issue of fact is only material when "`the facts alleged are such as to constitute a legal defense or are of such nature as to affect the result of the action, or if the resolution of the issue is so essential that the party against whom it is resolved may not prevail. A question of fact which is immaterial does not preclude summary judgment.'" Nasco Equip. Co. v. Mason, 291 N.C. 145, 149, 229 S.E.2d 278, 282 (1976) (emphasis omitted) (quoting Norfolk W.Ry. Co. v. Werner Indus., Inc., 286 N.C. 89, 95, 209 S.E.2d 734, 737 (1974)).
While our courts have not defined "impeaching circumstances," the pertinent definition of the verb "impeach" includes: "To challenge the accuracy or authenticity of (a document)." Black's Law Dictionary 768 (8th ed. 2004). Accordingly, an "impeaching circumstance" must, at the very least, have a bearing on the accuracy or authenticity of the appraisal. Austin does not, however, offer any explanation as to how the delay in Reich's rendering his appraisal affects the accuracy or the authenticity of his appraisal. Thus, any issue of fact regarding that delay is immaterial and insufficient to overturn the trial court's grant of summary judgment.
Austin stated in his affidavit his belief that Elledge's refusal to agree to a new third appraiser "was an attempt to cause Defendant to accept a lower price for his shares and to delay payment for those same shares." This belief, even if it were supported by evidence, still does not impugn the accuracy of the ultimate appraisal.
Next, Austin argues that an issue of fact exists regarding what the parties meant with respect to the phrase "corporate assets" when providing for appraisal in their contract. Austin contends that Reich's appraisal of AEI's real property did not amount to an appraisal of all of AEI's corporate assets. Austin points to only two other possible assets requiring appraisal: "building plans which [Austin has] contributed to the Corporation and which the Corporation has continued to use in the development of the Queens Crest Development, as well as services which [Austin] contributed that benefited the Corporation."
We first note that our courts have held that errors in law or fact are insufficient to invalidate an appraisal fairly and honestly made. Harrell, 148 N.C. App. at 187, 557 S.E.2d at 582. Under this principle, this Court has refused to invalidate an appraisal based on an allegation that the appraiser mistakenly included non-hurricane damage in an appraisal of the loss incurred as a result of a hurricane. Harleysville, 155 N.C. App. at 371, 574 S.E.2d at 496. If the inclusion of non-covered losses in an appraisal is insufficient to invalidate the appraisal, then we cannot see how the alleged omission of property from an appraisal could be sufficient to justify denial of summary judgment.
Further, in Enzor, the appellant made an analogous argument to that made by Austin: "Defendant next contends that the trial court erred by failing to instruct the umpire and appraisers on the proper method for determining actual cash value." Enzor, 123 N.C. App. at 546, 473 S.E.2d at 639. Austin, in this case, is similarly arguing that the trial court should instruct the third appraiser on what should be included within "corporate assets." In Enzor, however, this Court upheld the appraisal because the contract contained no provision requiring that the appraisers be instructed and because the defendant's objection to the appraisal fell within the principle that errors of law or fact are insufficient to invalidate an appraisal award. Id., 473 S.E.2d at 639-40. Enzor leads to the conclusion in this case that the trial court properly refused to overturn the Reich appraisal and require a new appraisal including additional assets.
In any event, a review of the record reveals no issue of fact as to the parties' intent regarding the "corporate assets" to be appraised in connection with the stock repurchase. Elledge served an interrogatory on Austin that asked: "In agreeing to use John Reich as the appraiser, did Defendant understand Mr. Reich's work to include the appraisal of assets other than real property?" Austin answered: "No, although in retrospect it [sic] should have." Further, in Austin's answer to the complaint, he "admitted that the appraisers selected by both parties were primarily real estate appraisers and were focused on valuing real estate." In fact, in Austin's brief on appeal, he asserts: "[T]here is no disagreement between the parties as to the extent of the three appraisals which have to date been submitted in this matter. Both Plaintiff and Defendant acknowledge that the appraisals thus far submitted valued only the real estate owned by the Corporation." See Hood v. Davidson, 207 N.C. 329, 334, 177 S.E. 5, 8 (1934) ("[I]n determining the meaning of an indefinite contract, the construction placed upon the contract by the parties themselves will usually be adopted by the Court.").
In short, the contractual appraisal procedure was followed, everyone concurred that the property to be appraised by their own appraisers and the third appraiser was the real estate, and the question of additional assets only arose after Austin received a final appraisal with which he disagreed. If we allowed a party to agree to the ground rules of the appraisal and then, upon receipt of the appraisal, to revisit those rules, we would be undermining the finality of the process. This Court in Harrell adopted as controlling with respect to appraisal proceedings the following language applicable here:
"[A]n award is intended to settle the matter in controversy, and thus save the expense of litigation. If a mistake be a sufficient ground for setting aside an award, it opens the door for coming into court in almost every case; for in nine cases out of ten some mistake either of law or fact may be suggested by the dissatisfied party. Thus . . . arbitration instead of ending would tend to increase litigation."
Harrell, 148 N.C. App. at 187, 557 S.E.2d at 582 (quoting Cyclone Roofing Co. v. David M. LaFave Co., 312 N.C. 224, 236, 321 S.E.2d 872, 880 (1984)).
Accordingly, we hold that Austin has failed to present evidence that the contractual appraisal procedure was not followed, that any impeaching circumstances exist, or that the appraisal in this case was not fairly and honestly made. We, therefore, affirm the trial court's order granting summary judgment.
Affirmed.
Judges TIMMONS-GOODSON and CALABRIA concur.
Report per Rule 30(e).